Lottery grants do not 'crowd out' other sources of funding, research finds

26 September 2013
by Colin Richardson

Research by the Centre for Market and Public Organisation, based on a study led by Sarah Smith, suggests it actually brings other funding in

Sarah Smith

Lottery grants do not "crowd out" other sources of funding but enable charities to thrive and grow, according to new research.

The Centre for Market and Public Organisation at Bristol University analysed a sample of more than 5,000 grant applications made by the Community Fund’s Grants for Large Projects programme – one of the forerunners of the Big Lottery Fund – between 2002 and 2005.

On average, the incomes of charities that received funding were 22 per cent higher four years after being awarded grants than those of unsuccessful applicants.

Receiving a grant also made it more likely that a charity would survive, researchers found.

The positive impact of a grant was felt most strongly in the first couple of years, probably because most lottery grants were for a two-year period, researchers said.

But the effect, though weaker, was found to persist for up to four years.

The research also looked at charity income in the year before the grant committee made a decision and found no difference in income growth between those charities that were awarded grants and those that were not. This, the paper says, was to rule out the idea "that grants were awarded to charities that show better (or worse) income growth prior to the committee decision".

This study contrasts with data from the US, where lottery grants have been seen to have a negative effect on charity income.

The researchers said this might happen because, unlike the more targeted US state lotteries, National Lottery grants were spread widely across many areas, thereby avoiding "any impression that any particular good cause is being adequately funded by this source".

Sarah Smith, professor of economics at Bristol University, who led the study, said that the findings indicated that grant funding played a vital role for many charities.

"It is clear that it doesn’t simply substitute for other sources of income, but in fact ‘crowds in’ other incomes and really helps some charities to thrive and grow," she said.

Unsurprisingly, the beneficial effect of a grant was felt more strongly by smaller charities than by larger ones.

Micro-charities, defined as those with annual incomes of less than £10,000, experienced an increase in income of almost 60 per cent in the four years after receiving grants compared with equivalent charities whose grant applications failed.

For every pound of lottery grant received, medium-sized charities, which were classified as those with annual incomes of between £100,000 and £1m, had increased their income on average by £1.60 after four years.

Major charities, defined as those with annual incomes of more than £5m, experienced no significant change in their income in the years following a grant award.